Showing posts with label Sea Nine Veba. Show all posts
Showing posts with label Sea Nine Veba. Show all posts
US Says Benefit Plan Scheme Costs Millions In Taxes
Law360, New York (October 11, 2013, 2:38 PM ET) -- The
U.S. government sued an insurance program marketer in California federal court
Wednesday in an effort to shut down a purported scheme pushing small businesses
to buy into employee benefits programs it claims are structured to cheat the
government out of millions of dollars in taxes.
The government’s complaint accuses KAE Insurance Services Inc. and affiliated entities of hawking voluntary employee beneficiary association plans on the misleading promise that the participating businesses can legally write off plan contributions as federal income tax deductions while still recouping the full value of those contributions down the road, according to the complaint.
The defendants have long been well aware, however, that the plans as structured violate the Internal Revenue Code and regulations promulgated by the U.S. Department of the Treasury, and their activities must be halted via a court injunction, the government argues.
“Defendants have continued to falsely claim that the VEBA plans in fact comply with the tax laws, and manage and promote them to this day despite their documented knowledge of the illegality of the plans,” the government said. “The result is significant amounts of lost tax revenue to the treasury based on erroneously claimed tax deductions.”
The complaint alleges that named defendant and California resident Kenneth Elliott has since 2001 used a network of businesses, independent certified public accountants and financial planners to sell companies on the VEBA plans on the promise they can provide “a lucrative and tax-advantaged method to accrue wealth.”
Promotion of those plans has led participating companies across the country to deduct millions in contributions, despite the fact that the IRS decided more than a decade ago — in a determination repeatedly upheld by federal courts — that massive tax write-offs under such plans are at odds with federal law, according to the complaint.
The government said one audit of some 41 customers who participated in the plans marketed by the defendants revealed a total tax deficiency of nearly $14 million, and further estimated the potential total loss to date to be over $70 million.
Elliot and his co-defendants are said to push the VEBA plans on wealthy customers with closely-held businesses such as medical practices, pitching the programs as a legal and tax-free means of providing medical or death benefits to employees, according to the complaint.
VEBA contributions are placed into a trust used to purchase insurance contracts, the premiums for which would otherwise be included as part of that employee’s gross income if purchased directly. Because such plans have in the past been used as tax shelters, federal law tightly regulates the ways in which plan contributions may be deducted, the government said.
The complaint noted that one common example of how such plans have been used as “vehicles for rampant tax abuse” involves paying excessive contributions to obtain cash value insurance policies set aside for future benefits to company owners that do not actually provide welfare benefits to employees but instead are a means of distributing excess corporate profits and softening current federal tax obligations.
The involvement of Sea Nine Associates Inc. — which sponsors the VEBA plans promoted by the instant suit defendants and is itself a named defendant — in a suit over those plans more than a decade ago serves as evidence that the defendants are well aware of the potential illegality of their enterprise, the government said.
“The core purpose and effect of the participation in a Sea Nine VEBA plan is to provide participants with a mechanism to accumulate wealth for their personal benefit, unlawfully protecting that income from federal taxation by treating it as a welfare benefit when it was that in name only,” the complaint said.
Representatives for the parties were not immediately available for comment Friday.
Counsel information for the defendants was not immediately available.
The case is United States of America v. Kenneth Elliott et al, case number 8:13-cv-01582 in the U.S. District Court for the Central District of California.
The government’s complaint accuses KAE Insurance Services Inc. and affiliated entities of hawking voluntary employee beneficiary association plans on the misleading promise that the participating businesses can legally write off plan contributions as federal income tax deductions while still recouping the full value of those contributions down the road, according to the complaint.
The defendants have long been well aware, however, that the plans as structured violate the Internal Revenue Code and regulations promulgated by the U.S. Department of the Treasury, and their activities must be halted via a court injunction, the government argues.
“Defendants have continued to falsely claim that the VEBA plans in fact comply with the tax laws, and manage and promote them to this day despite their documented knowledge of the illegality of the plans,” the government said. “The result is significant amounts of lost tax revenue to the treasury based on erroneously claimed tax deductions.”
The complaint alleges that named defendant and California resident Kenneth Elliott has since 2001 used a network of businesses, independent certified public accountants and financial planners to sell companies on the VEBA plans on the promise they can provide “a lucrative and tax-advantaged method to accrue wealth.”
Promotion of those plans has led participating companies across the country to deduct millions in contributions, despite the fact that the IRS decided more than a decade ago — in a determination repeatedly upheld by federal courts — that massive tax write-offs under such plans are at odds with federal law, according to the complaint.
The government said one audit of some 41 customers who participated in the plans marketed by the defendants revealed a total tax deficiency of nearly $14 million, and further estimated the potential total loss to date to be over $70 million.
Elliot and his co-defendants are said to push the VEBA plans on wealthy customers with closely-held businesses such as medical practices, pitching the programs as a legal and tax-free means of providing medical or death benefits to employees, according to the complaint.
VEBA contributions are placed into a trust used to purchase insurance contracts, the premiums for which would otherwise be included as part of that employee’s gross income if purchased directly. Because such plans have in the past been used as tax shelters, federal law tightly regulates the ways in which plan contributions may be deducted, the government said.
The complaint noted that one common example of how such plans have been used as “vehicles for rampant tax abuse” involves paying excessive contributions to obtain cash value insurance policies set aside for future benefits to company owners that do not actually provide welfare benefits to employees but instead are a means of distributing excess corporate profits and softening current federal tax obligations.
The involvement of Sea Nine Associates Inc. — which sponsors the VEBA plans promoted by the instant suit defendants and is itself a named defendant — in a suit over those plans more than a decade ago serves as evidence that the defendants are well aware of the potential illegality of their enterprise, the government said.
“The core purpose and effect of the participation in a Sea Nine VEBA plan is to provide participants with a mechanism to accumulate wealth for their personal benefit, unlawfully protecting that income from federal taxation by treating it as a welfare benefit when it was that in name only,” the complaint said.
Representatives for the parties were not immediately available for comment Friday.
Counsel information for the defendants was not immediately available.
The case is United States of America v. Kenneth Elliott et al, case number 8:13-cv-01582 in the U.S. District Court for the Central District of California.
US Says Benefit Plan Scheme Costs Millions In Taxes
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US
Says Benefit Plan Scheme Costs Millions In Taxes
Law360,
New York (October 11, 2013, 2:38 PM ET) -- The U.S. government sued an insurance
program marketer in California federal court Wednesday in an effort to shut down
a purported scheme pushing small businesses to buy into employee benefits
programs it claims are structured to cheat the government out of millions of
dollars in taxes.
The
government’s complaint accuses KAE Insurance Services Inc. and affiliated
entities of hawking voluntary employee beneficiary association plans on the
misleading promise that the participating businesses can legally write off plan
contributions as federal income tax deductions while still recouping the full
value of those contributions down the road, according to the complaint.
The
defendants have long been well aware, however, that the plans as structured
violate the Internal Revenue Code and regulations promulgated by the U.S.
Department of the Treasury, and their activities must be halted via a court
injunction, the government argues.
“Defendants
have continued to falsely claim that the VEBA plans in fact comply with the tax
laws, and manage and promote them to this day despite their documented knowledge
of the illegality of the plans,” the government said. “The result is significant
amounts of lost tax revenue to the treasury based on erroneously claimed tax
deductions.”
The
complaint alleges that named defendant and California resident Kenneth Elliott
has since 2001 used a network of businesses, independent certified public
accountants and financial planners to sell companies on the VEBA plans on the
promise they can provide “a lucrative and tax-advantaged method to accrue
wealth.”
Promotion
of those plans has led participating companies across the country to deduct
millions in contributions, despite the fact that the IRS decided more than a
decade ago — in a determination repeatedly upheld by federal courts — that
massive tax write-offs under such plans are at odds with federal law, according
to the complaint.
The
government said one audit of some 41 customers who participated in the plans
marketed by the defendants revealed a total tax deficiency of nearly $14
million, and further estimated the potential total loss to date to be over $70
million.
Elliot
and his co-defendants are said to push the VEBA plans on wealthy customers with
closely-held businesses such as medical practices, pitching the programs as a
legal and tax-free means of providing medical or death benefits to employees,
according to the complaint.
VEBA
contributions are placed into a trust used to purchase insurance contracts, the
premiums for which would otherwise be included as part of that employee’s gross
income if purchased directly. Because such plans have in the past been used as
tax shelters, federal law tightly regulates the ways in which plan contributions
may be deducted, the government said.
The
complaint noted that one common example of how such plans have been used as
“vehicles for rampant tax abuse” involves paying excessive contributions to
obtain cash value insurance policies set aside for future benefits to company
owners that do not actually provide welfare benefits to employees but instead
are a means of distributing excess corporate profits and softening current
federal tax obligations.
The
involvement of Sea Nine Associates Inc. — which sponsors the VEBA plans promoted
by the instant suit defendants and is itself a named defendant — in a suit over
those plans more than a decade ago serves as evidence that the defendants are
well aware of the potential illegality of their enterprise, the government
said.
“The
core purpose and effect of the participation in a Sea Nine VEBA plan is to
provide participants with a mechanism to accumulate wealth for their personal
benefit, unlawfully protecting that income from federal taxation by treating it
as a welfare benefit when it was that in name only,” the complaint said.
Representatives
for the parties were not immediately available for comment Friday.
Counsel
information for the defendants was not immediately available.
The
case is United States of America v. Kenneth Elliott et al, case number
8:13-cv-01582 in the U.S. District Court for the Central District of
California
HARM TO THE GOVERNMENT AND THE PUBLIC
Elliot has admitted in prior sworn testimony that there are at least 200 employer/companies that have participated in a Sea Nine VEBA plan, and the IRS is aware of 205 such entities. Elliot and Sarva continue today to promote Sea Nine VEBA plans, and Sea Nine appears to have obtained additional plan participants in 2012. And third parties with whom he has previously worked continue to recommend Sea Nine VEBA plans to certain of their customers.
Defendants Organize, Operate and/or promote a scheme- VEBA PLANS
Defendants organize, operate, and or promote a scheme in which they sell to customers owning smalloften closely-held companies participation in Voluntary Employee Beneficiary Associates (VEBA) plans. The defendants claim that customers can, through the contributions their business makes to VEBA plans administered or operated by the defendants, fund for their employees (and more often than that not themselves) a valuable insurance-oriented welfare benefit while claiming all of the VEBA contributions as a federal income tax deduction. At the same time , those plan contributions are intended to provide participating customers with a valuable deferred compensation-like benefit that allows them to recoup the full value of their initial contributions. In fact, this scheme- through which the Defendants' customers enjoy a substantial tax deduction for their plan contributions, while also permitting them to retain the full value of the contribution later- violates the Internal Revenue Code and applicable Treasury regulations, and the Defendants' promotion of it constitutes enjoin-able penalty conduct.
United States Of America, Oct. 9th 2013
Plantiff, Case No SACV13-1582
vs
Kenneth Elliot d/b/a Kae Insurance COMPLAINT FOR PERMANENT
Services, Inc., Vista Barranca, Inc., and INJUNCTION AND OTHER
Kae Consulting: Sea Nine Associates, Inc., RELIEF
and Ramesh Sarva
Defendants.
The United States of America, for its complaint against Defendants Kenneth Elliot d/b/a KAE Insurance Services, Inc., Vista Barranca, Inc., and KAE Consulting, Sea Nine Associates, Inc., and Ramesh Sarva, seeking a permanent injunction pursuant to 26 U.S. C. 7402 and 7408 to prohibit them from further promoting a fraudulent tax scheme.
Document 1 Filed 10/09/13
That this Court,pursuant to L.R.C. 7402 and 7408, enter a permanent injunction prohibiting Defendants Kenneth Elliot (d/b/a KAE Insurance Services, Inc., Vista Barranca, Inc., and KAE Cinsulting). Sea Nine Associates,Inc., and Ramesh Sarva, and any other person in active concert or participation with them.
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